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Public-Private Linkage in Biomedical Research in Japan: Lessons of the 1990s1

Yosuke Okada

Hitotsubashi University


Kenta Nakamura

Japan Society for the Promotion of Science and Hitotsubashi University


Akira Tohei

Competition Policy Research Center, Fair Trade Commission of Japan

1.
INTRODUCTION

To promote public-private linkage in scientific research through policy initiatives, it is essential for policymakers to understand the mechanism for producing, transmitting, and using scientific knowledge between private and public sectors. However, institutional and organizational features of public-private linkage appear to differ from one country to another. Indeed, Japanese innovation system is quite distinct from those of the other advanced countries in many respects.2

This paper explores salient institutional characteristics that are likely to affect public-private linkage in Japan. In particular, we would like to present policy challenges distilled from the experience in the 1990s in view of (i) public funding scheme, (ii) Japanese pro-patent policy for the public sector, (iii) institutional constraint on clinical trials, and (iv) mobility of researchers across private and public sectors. We examine these policy questions focusing on biomedical research because producing scientific knowledge in biomedical research is closely

1

The authors appreciate beneficial comments from Kenneth Flamm, Akira Goto, Bronwyn Hall, Shozo Nagai, John Walsh, and other participants at the National Academy and NISTEP International Conference. Okada and Nakamura appreciate financial support from the Ministry of Education, Culture, Sports, Science and Technology. Usual disclaimer applies.

2

See, for example, Nelson ed. (1993), Odagiri and Goto (1993, 1996), and Henderson et al. (1999).



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Public-Private Linkage in Biomedical Research in Japan: Lessons of the 1990s1 Yosuke Okada Hitotsubashi Uniersity Kenta Nakamura Japan Society for the Promotion of Science and Hitotsubashi Uniersity Akira Tohei Competition Policy Research Center, Fair Trade Commission of Japan 1. intRoDuction To promote public-private linkage in scientific research through policy initia - tives, it is essential for policymakers to understand the mechanism for producing, transmitting, and using scientific knowledge between private and public sectors. However, institutional and organizational features of public-private linkage appear to differ from one country to another. Indeed, Japanese innovation system is quite distinct from those of the other advanced countries in many respects.2 This paper explores salient institutional characteristics that are likely to affect public-private linkage in Japan. In particular, we would like to present policy challenges distilled from the experience in the 1990s in view of (i) public funding scheme, (ii) Japanese pro-patent policy for the public sector, (iii) institu - tional constraint on clinical trials, and (iv) mobility of researchers across private and public sectors. We examine these policy questions focusing on biomedical research because producing scientific knowledge in biomedical research is closely 1The authors appreciate beneficial comments from Kenneth Flamm, Akira Goto, Bronwyn Hall, Shozo Nagai, John Walsh, and other participants at the National Academy and NISTEP International Conference. Okada and Nakamura appreciate financial support from the Ministry of Education, Culture, Sports, Science and Technology. Usual disclaimer applies. 2See, for example, Nelson ed. (1993), Odagiri and Goto (1993, 1996), and Henderson et al. (1999). 28 PRePublication coPy

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2 PUBLIC-PRIVATE LINKAGE IN BIOMEDICAL RESEARCH IN JAPAN associated with implementing the knowledge into commercialization and because life science has been one of the top four prioritized areas (along with information and communications, environmental science, and nanotechnologies & materials) in Japanese science and technology policy since the late 1990s.3 Section 2 explains legislative measures facilitating public-private linkage and public funding scheme in Japan. Traditionally, the Japanese government gave top priority to energy-related research such as nuclear fusion. But The Basic Plan for Science and Technology, which has been introduced every five year period since 1996, has gradually reallocated research expenditures to other technology fields, putting more weight on life science. Since the introduction of the Basic Plan, more than 400 billion yen has been allocated to life science every year.4 The . establishment of the Council for Science and Technology Policy (CSTP) attached to the Cabinet office in 2001 is one of the watershed events that facilitated more flexible allocation of the research budget. Unfortunately, however, there are still a lot of defects in the public funding scheme. For instance, the share of competitive research grants is still small, and the grant is very rigid to use. Section 3 examines the Japanese pro-patent policy. Since the latter half of 1990s, the Japanese government has actively promoted pro-patent policy in order to advance research collaboration among industry, university, and government and to facilitate commercialization of their research findings. These initiatives reflected considerable interest among Japanese policymakers in emulating the U.S. Bayh- Dole Act of 1980, which is widely credited with stimulating significant growth in university-industry technology transfer and research collaboration. We depict the trends in government and university patenting by assignee types in biomedical fields and discuss possible effects of the Japanese version of the Bayh-Dole policy on bio- medical research. We believe that the Japanese version seems to be just beginning to have some impact on the patenting activity of government research institutes. On the other hand, it does not appear to dictate the patenting behavior of university researchers. Institutional and organizational features of government research insti- tutes and universities are keys to elucidate their differential responses. Section 4 discusses institutional constraints on clinical trials. The clinical trial is an important institutional infrastructure for promoting translational research, which is the combination of basic and applied research producing clinically effective biomedical products or gene therapy/diagnoses. Inventing biomedical products is one of the ultimate goals of biomedical research. Therefore, if insti - tutional constraints on clinical trials are severely binding, it may be all the more difficult to obtain an approval for commercialization of a new biomedical product 3The present study mentions “public sector” as indicating both government and university. It should be noted, however, that university researchers and government researchers may be very different from each other in propensity to patent, to the extent of their affinity to open science culture, and the resulting values of their patents. We will discuss these points in later sections. 4See Council for Science and Technology Policy (2005) for more detail. PRePublication coPy

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20 21ST CENTURY INNOVATION SYSTEMS FOR JAPAN AND THE UNITED STATES from competent regulatory agencies. Consequently, a deficient system of clini - cal trials may weaken the incentive to do clinical research not only in the private sector but also in the public sector even if the government actively promotes the pro-patent policy for the public sector. Section 5 examines the mobility of Japanese researchers. An inflexible career trajectory is one of salient characteristics of Japanese researchers. Furthermore, Japanese public sector researchers at government research institutes and national universities were burdened with rigid office regulations as well as restrictive dual- employment rules until quite recently. Accordingly, the low mobility of researchers has possibly hindered mutual understanding regarding institutional missions, mutual understanding organizational features, and researchers’ incentives among industry, government, university. Section 6 closes the present paper with brief concluding remarks. 2. leGiSlatiVe initiatiVeS anD Public FunDinG ScHeMe legislative initiatives Promoting Public-Private linkage After the enactment of the Basic Law on Science and Technology in 1995, a wave of legislations took place encouraging collaborative research among indus - try, government, and universities. Several legislative measures actually emulated . relevant U.S. policies such as the Bayh-Dole Act and the Small Business Innova - tion Research (SBIR) program. Many legislative initiatives were introduced between 1998 and 2000, pri- marily by the Ministry of Economy, Trade, and Industry (METI). Among these policy initiatives, The Law on the Special Measures for Reitalizing Industrial Actiities (The Japanese Bayh-Dole Act) was quite important because it was widely expected to have profound effect on the patenting activity and technology transaction of the public sector in the biotechnology sector. The Japanese Bayh-Dole Act, enacted in 1999, granted researchers permis - sion to retain patents to inventions derived from publicly funded research and allowed for exclusive licensing of state-owned patents. The Japanese Bayh-Dole Act appears to have had significant effect on the way in which public sector researchers produce privately appropriable research results. As will be discussed in the next section, patenting by government research insti- tutes and universities has exploded since 1999. In addition, the number of patent applications that were filed jointly by private and public sector researchers also increased somewhat since 1999. However, it is less certain whether the Japanese Bayh-Dole policy really encourages the public sector to file aluable patents. basic Plan for Science and technology In spite of severe economic and fiscal conditions in the 1990s, public fund - ing for science and technology (S&T) has dramatically increased since the latter PRePublication coPy

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21 PUBLIC-PRIVATE LINKAGE IN BIOMEDICAL RESEARCH IN JAPAN half of 1990s and reached around 3.58 trillion yen as of FY2005. In addition to increasing the budget, policymakers have shifted more resources into life science research. The First Basic Plan for Science and Technology (1996-2000) initiated several institutional reforms such as a tenure system, a program to support 10,000 postdoctoral fellows, and industry-government-university collaboration in research. Government R&D expenditures during the First Basic Plan was 17 trillion yen over five years. The Second Basic Plan for Science and Technol - ogy (2001-2005) raised government R&D expenditures to 21 trillion yen over five years and commanded strategic priority setting in life science, information and communications, environmental science, and nanotechnologies & materials. The Third Basic Plan for Science and Technology (2006-2010) further raised govern - ment R&D expenditures to 25 trillion yen (targeted figure) over five years, and the strategic priority setting of the 2nd Basic Plan was reformulated to extend to other technology fields such as robotics and fuel cells. council for Science and technology Policy The Council for Science and Technology Policy (CSTP) was established in the Cabinet Office along with the comprehensive reshufflings of administrative organizations in 2001. The main role of this council, which is headed by the prime minister, is to harmonize S&T policies across ministries and agencies. The estab - lishment of the CSTP was one of the watershed events for public research funding because it reduced the power of the individual agencies to control spending. The result is that CSTP’s review of a research project proposed by a ministry or an agency is now considered in light of the priorities of the Basic Plan. This review process was officially stipulated as a mission of the CSTP in 2001. For example, every research project is ranked in one of four categories by the CSTP. . Although there are no clearly stated rules requiring agencies to follow CSTP guid - ance, a favorable review is very likely to influence agencies’ funding decisions. Prioritization of Public Research Fund With respect to the allocation of the research budget in FY2005, there are three noteworthy characteristics. First, competitive research grants consist of just around 13 percent (470 billion yen) of the total budget. Although funding for com- petitive grants has grown in recent years, their share of total government research funding is far below the U.S. percentage of more than 35 percent.5 Second, there are many government research institutes such as national labo - ratories and independent administrative agencies (IAAs) that are generally well funded. The Japan Science and Technology Agency (JST), National Institute of 5See Council for Science and Technology Policy (2002) for detail. PRePublication coPy

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22 21ST CENTURY INNOVATION SYSTEMS FOR JAPAN AND THE UNITED STATES Advanced Industrial Science and Technology (AIST), Institute of Physical and Chemical Research (RIKEN), National Agriculture and Bio-oriented Research Organization (NARO), and National Institute of Agrobiological Sciences (NIAS) are closely involved in biomedical research, and they account for about 20 percent of total public R&D subsidies to all IAAs. The funding for government research institutes (with about 34,000 researchers) is roughly equivalent funding for uni - versities (with about 291,000 researchers) in FY2004.6 Third, government research funds are sprinkled through many vertically divided funding agencies. Japan has no equivalent of the U.S. National Institutes of Health (NIH), which incorporates almost all biomedical science funding. In In addition, agencies do not share information about which researchers they fund, and there is no common guiding principle of peer review across agencies. This could explain why a small number of star scientists receive a large share of research funds from multiple funding agencies. These characteristics are likely to reinforce the tendency of the so-called Matthew effect in science (Merton, 1968; Dasgupta and David, 1994), by which an eminent scientist will obtain more research funds than a comparatively unknown researcher even if their works are similar to each other.7 Furthermore, research grants have been concentrated on a few prominent top national universities. The top 10 national universities receive about 50 percent of research grants in Japan, and Tokyo University alone receives roughly 15 percent of total grants-in-aid from the Ministry of Education, Culture, Sports, Science, and Technology (MEXT). 8 The four prioritized research areas accounted for almost 40 percent of the total public R&D expenditures in 2001, and the share was increased during the Second Basic Plan for the years 2001-2005, thanks to CSTP’s influence. Significant shifts . Significant in budget al.locations are rare in Japan because each segment of the budget is closely related to vested interests of vertically divided ministries and agencies. Research Grants Almost all Japanese universities and government research institutes are funded predominantly by the government and are tightly controlled by various ministries and agencies.9 The most important sources of research grants for Japanese universities are grants-in-aid (188 billion yen in FY2005), Center- 6See Section 5 for detail. 7“For unto eery one that hath shall be gien, and he shall hae abundance: but from him that hath not shall be taken away een that which he hath.” (Matthew XXV:29, KJV). 8See Council for Science and Technology Policy (2002) for more detail. 9Odagiri and Goto (1993, 1996), Odagiri (1999), Kneller (2003), and Walsh and Cohen (2004) provide beneficial information about organizational and institutional differences between Japan and the U.S. regarding public research and its collaboration with industry. They suggest that public research has a substantial impact on industrial R&D in both countries, although the institutional environments for university-industry linkages in the two countries are quite distinct. PRePublication coPy

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2 PUBLIC-PRIVATE LINKAGE IN BIOMEDICAL RESEARCH IN JAPAN of-Excellence 21st Century Grants (38 billion yen) by MEXT, and Adjustment Outlays for Promoting Science and Technology (40 billion yen) by JST. The United States and Japan differ considerably in the way that they manage he their research budgets. The use of research grants in Japan is very restrictive. For example, personnel expense for core project researchers is prohibited except for part-time employment of graduate students and postdoctoral fellows; carrying over expenses from one fiscal year to the next is not allowed; and the opportunity of subscriptions is once a year in all types of research grants in Japan. Inflexible use of research grants appears to have induced some university researchers to prefer informal collaboration with industry researchers to muddling through red-tape routines in applying for collaborative research grants, hiring temporary researchers, contracting commissioned research, and negotiating the ownership of research outcomes.10 3. GoVeRnMent anD uniVeRSity PatentinG in bioMeDical FielDS Japanese bayh-Dole act Among the policy initiatives, the Japanese Bayh-Dole Act is particularly important because it has been widely expected to have profound effect on patent- ing activity and technology transaction of the public sector. As is well known, the Japanese economy in the 1990s is called as “a lost decade” with gnawing stagna - tion.11 The economic condition behind the pro-patent movement in the 1990s is in marked contrast to U.S. economic conditions in the 1970s, which motivated the introduction of the Bayh-Dole Act in 1980. The Japanese Bayh-Dole Act and other auxiliary measures appear to have had a significant effect on the way public sector researchers produce privately appropriable research results in biomedical fields. Patenting by both government research institutes and universities has exploded since the introduction of the Japanese Bayh-Dole Act. In addition, the number of patent applications that were filed jointly by private and public sector researchers also increased since 1998. In biomedical research, there is an increased trend of patenting by the public sector.12 The share of patents that were filed by the public sector almost trebled in the late 1990s and reached almost 30 percent of total patents in 2002 if we include co-applications with industry.13 10See Odagiri (1999) and Kneller (2003) for similar observations. 11See, for example, Hayashi and Prescott (2002). 12See Nakamura et al. (2007) in detail. ee 7) ) 13Here we define the share of the public sector patents consisting of a single assignee (i.e., government and university) and multiple co-assignees (i.e., government and corporation, university and corporation, and government and university). The share of the public sector patent was less than 10 percent in the early 1990s, but it has been rapidly increased since the late 1990s and reached 29.1 percent in 2002. PRePublication coPy

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2 21ST CENTURY INNOVATION SYSTEMS FOR JAPAN AND THE UNITED STATES With respect to the trend of patenting by assignee types, it is worth noting that patenting by the public sector as a single assignee has increased particularly since the introduction of the Japanese Bayh-Dole Act. The number of jointly filed patents by private and public sectors is also increasing but lagging behind some - what. We think that institutional features of government research institutes and universities are keys to elucidate the salient differences in their responses. Patenting by Government Research institutions The patenting by government research institutions is highly concentrated in the following top five government research institutes: JST, AIST, RIKEN, NARO, and NIAS.14 They account for almost 70 percent of all government patents, ands, , the top three government institutions (JST, AIST and RIKEN) occupy the majority of government research institutes’ patents. This may partly reflect the fact that government research expenditures are somewhat concentrated on these research institutes.15 We believe that the government research institutes have been strongly encour- aged to file patents by supervising authorities since the introduction of the First Basic Plan for Science and Technology because the number of patents (as well as patent licenses) is regarded as one of important performance indexes in the annual reviews by CSTP. In addition, the government research institutes are tightly super- vised by a vertically divided bureaucracy and are therefore quicker to respond to administrative guidance than are with universities. university Patenting For most university researchers, patenting may be far from their ordinary academic lives. Most major research universities are national universities, and although they are closely supervised by MEXT, the publication of academic papers seems to be much more important than patenting, as is also the case in the top U.S. research universities.16 The trend toward increased university patenting since 1998 may be partly explained by the recent facilitating policy measures, which somewhat alleviated the red-tape burden in government research funding 14The top five government institutes are defined by the order of the total patent applications since 1991 through 2002 in biomedical research. Jurisdictional authorities are as follows: MEXT for JST and RIKEN; METI for AIST; and Ministry of Agriculture, Forestry and Fisheries (MAFF) for NARO and NIAS. The jurisdictional relationships were not changed before and after reorganizations which had occurred several times in the 1990s. 15These five research institutes account for around 20 percent of total public R&D subsidies to independent administrative agencies (IAAs). Concerning the distribution of government research expenditures among public research institutes, see National Institute of Science and Technology Policy (2005) for detail. 16See, for example, Mowery et al. (2001) and Agrawal and Henderson (2002). PRePublication coPy

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2 PUBLIC-PRIVATE LINKAGE IN BIOMEDICAL RESEARCH IN JAPAN and negotiations with the private sector concerning the ownership of research results and licensing conditions. However, as we discuss below, transferring sci - entific knowledge from university to industry through formal contracts such as patent licensing appears to be at a rudimentary stage. commercialization of Scientific Knowledge and Patent Value The Law on the Promotion of Technology Licensing by Uniersities etc. (the TLO Act), which was enacted in 1998, states that the government should support technology licensing organizations (TLOs) of universities and government research institutes. In addition, universities and government research institutes should obtain partial remission of patent fees, and the licensees from the government-approved TLOs may be given government investment under certain conditions. The TLO Act also targeted the public sector, but with less success. Although patenting by the public sector was significantly stimulated by the Japanese Bayh-Dole Act, the licensing activity by TLOs has not been very impressive, as yet, in Japan. Although the number of patents that are owned by the Japanese TLOs is now quite large, royalty revenues by them are still at a low level. As Argyres and Liebeskind (1998) indicate, the commercialization of government/university research would be hampered because of their historic commitment to create and sustain the “intellectual commons” for the public at large. Informal free flow of knowledge between public and private sectors can be an important source of social benefit. Patenting may thereby inhibit diffusion of scientific knowledge, which has been christened “the tragedy of anti-commons” by Heller and Eisenberg (1998). In a related vein, Mowery and Sampat (2005) argue convincingly that the efforts at emulation of the Bayh-Dole policy are likely to have modest success at best without greater attention to the underlying structural differences among the higher education systems. Mowery and Sampat (2005, p.123) also suggest that adoption of Bayh-Dole-inspired policies by OECD countries, including Japan, “ignore one of the central justifications for Bayh-Dole, i.e., that government owner- ship of publicly funded inventions impedes their commercialization.” Even though patent statistics should be a beneficial source of information about the role of the public sector and its research collaboration with the private sector in commercializing research outcome, it is less certain whether the value of patents filed by the public sector is concomitantly increased by the pro-patent policy. Value analysis of public sector patents is therefore quite important. There are several prior studies concerning the Bayh-Dole Act in the United States. See, for example, Henderson et al. (1998), Mowery et al. (2001), Mowery . See, and Ziedonis (2002), Thursby and Thursby (2002), Mowery and Sampat (2005), Hall (2005), among others. These studies provide, to a greater or lesser degree, a cautious view of pro-patent policy and of Bayh-Dole-like measures in particular. PRePublication coPy

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26 21ST CENTURY INNOVATION SYSTEMS FOR JAPAN AND THE UNITED STATES Concerning the Japanese Bayh-Dole, we suggest in a recent study that the value of patents by government research institutes began to increase since the introduction of the pro-patent policy in the late 1990s. On the other hand, there is no significant change in the value of university patents before and after the Japanese Bayh-Dole Act. Thus the Japanese pro-patent policy does not appear to dictate the patenting behavior of university researchers regarding their “impor- tant” inventions (Nakamura et al., 2007). Nakamura 7). ). 4. clinical ReSeaRcH anD MeDical eValuation ScHeMe inactive translational Research in Japan Basic biomedical research and clinical research have distinct features in terms of required knowledge, cost structure and stage-specific skills. As a result, pro- patent policy measures would not necessarily facilitate clinical research. Translational research, in which basic and applied research are combined to produce clinically effective biomedical products or gene therapy/diagnoses, makes extensive use of post-genome technologies such as gene function, protein conformation, and protein function. However, the number of Japanese patents in these areas is not yet very impressive, and translational research may be one of the weakest areas in Japanese biomedical research. On the other hand, basic research such as genetic engineering and gene analysis are the most active fields in patenting in Japan although these are rather upstream technologies in the long-term process of biomedical research and are, if anything, mature research fields.17 The rapid growth of patenting in genetic engineering and gene analysis may be partly due to the enlargement of patent - able subject matters in the early 1990s. Roughly speaking, the patentable subject matters in Japan is ranked somewhere between the broader scope of the United States and the narrower scope in EU.18 Hollowing out of Domestic clinical trials The reasons for the rapid decrease in clinical trials in the early 1990s was: (i) the 1998 adoption of a stricter standard for screening proceedings based on the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH); (ii) many last-minute applications in the early 1990s before the 1997 reforms of the Drug Legislation Act, which was expected to prolong examination periods at that time; and (iii) several drug lawsuits such as the Soriudine case and the HIV-contaminated blood products case. As of 1997, ready and waiting notifications reached around 300. 17See Nakamura et al. (2007). 7). ). 18See Japan Patent Office (2003) for more detail. PRePublication coPy

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27 PUBLIC-PRIVATE LINKAGE IN BIOMEDICAL RESEARCH IN JAPAN According to the Office of Pharmaceutical Industry Research (2000), Japanese pharmaceutical companies increasingly start clinical trials overseas, particularly in the United States. In 1993, the ratio of clinical trials overseas to the total clinical trials for new chemical entities developed by Japanese pharmaceutical companies was 18.3 percent, but the ratio increased to 43.2 percent in 2000. Binding institutional constraints on clinical trials slows the approvals for commercialization of biomedical products. There are two types of organizational structure of clinical trials. In the United Kingdom and the United States the main examiners are in-house experts. On the other hand, in EU and France, a large number of outside experts are nominated, and some of them are selected on case by case basis. In Japan, there were drastic reorganizations of the clinical trial system in 1997 and 2004. The organizational structure of the clinical trials is now shifting from the outside-oriented to inside-oriented expert panels, but the number of in-house experts remains quite small in Japan.19 The Ministry of Health, Labor and Welfare itself suggests that the main reason for the hollowing out would be a poor clinical trials infrastructure.20 Implementation structure and incentives for clinical researchers and clinical study participants are not good enough in terms of funding as well as contracting system. The number of clinical research coordinators is also quite low in many national hospitals and national universities, which are the main implementing agencies in Japan. The hollowing out of clinical trials may cause slower access to new drug treatments and deterioration of the capability of clinical research by industry, medical doctors, and universities. 5. loW Mobility oF ReSeaRcHeRS The inflexible career path of researchers is one of salient characteristics of the Japanese researchers’ job market. It is quite infrequent for Japanese researchers to move across industry, government, and university employment during their careers. For example, only 1.1 percent of total researchers (8,800 of 790,900) .1 percent 8,800 ) switched their career path across the walls of industry, government, and universi - ties in 2004. In addition, even when job switching occurs, the end point of the . In career path is likely to be a university. The moves within sectors are also quite infrequent. The shares of job-switching researchers are 3.1 percent for corpora - tions (14,500 of 465,900), 2.3 percent for universities (6,600 of 291,100), and 500 of 900), ), 0 of 100), ), 6.6 percent for public research institutions (2,200 of 33,900).21 Among the reasons 00 of 900). ). for the low mobility of researchers in Japan are inflexible employment contracts, 19The number of in-house experts in Japan was gradually increased from 256 in 2004 to 341 in 2007. However the number of in-house examiners still remains much smaller than the U.S. See the Pharmaceuticals and Medical Device Agency (2007). 20See Ministry of Health, Labor and Welfare (2002) for more detail. 21See Ministry of Economy, Trade and Industry (2006) for more detail. PRePublication coPy

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28 21ST CENTURY INNOVATION SYSTEMS FOR JAPAN AND THE UNITED STATES immobile pension schemes, and seniority-based wage systems, particularly in the public sector. It is worth noting that the Japanese Bayh-Dole Act in 1999 further stipulates somewhat flexible dual-employment rules across private and public affiliations for the first time in Japan. Furthermore, the Law on the Enhancement of Industrial Technologies, which was enacted in 2000, made much further clarifications on the dual-employment rule. We think that the dual-employment provisions are no less important than the Bayh-Dole provisions in view of the inflexible job market for researchers in Japan. The Law on the Enhancement of Industrial Technologies stipulates that the government should take into account the significance of dual employment of the public sector researchers (for example, as a board member of for-profit entities in terms of transferring academic research outcome) and that the government should introduce necessary policy measures to facilitate commercialization of the research results of the public sector.22 However, these laws and other related ministerial ordinances has had only a limited effect, as yet, on the extent of researchers’ mobility, not to mention dual employments. organizational Reforms for Public-Sector Research The low mobility of researchers has possibly hindered mutual understand- mutual understand- ing regarding institutional missions, organizational cultures, and researchers’ , incentives among government, industry, and universities. Furthermore, Japanese public sector researchers are burdened with rigid office regulations and restrictive dual-employment rules. Unlike U.S. university researchers, Japanese university researchers have to abide by strict office regulations that are virtually identical to those for civil servants. In fact, there have been several organizational reforms for the public sector since 2001. In April 2001, almost all public research institutes were reorganized into “independent administrative agencies” (IAAs), which seem to be indepen - dent of the government as literally interpreted. But they have been financially as well as managerially supervised tightly by vertically divided ministries and agencies. As for Japanese national universities, they were reorganized to semi-private entities (so-called national university foundations) in April 2004. A national national university foundation is an intermediate legal entity in between government agency and public foundation. In exchange for this reform, since 2004 Japanese national universities have to accept a 1 percent annual decrease in their govern- govern- ment subsidy. Almost all universities, however, cannot obtain quid pro quo by . competitive research grants. 22Kneller (2003) provides beneficial information about organizational and institutional differences between Japanese and the U.S. universities in more detail. PRePublication coPy

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2 PUBLIC-PRIVATE LINKAGE IN BIOMEDICAL RESEARCH IN JAPAN These organizational reforms are called agencification (houjin-ka) and widely expected to improve organizational efficiency of universities (as well as govern- ment research institutes, perhaps, in slightly different ways). However, mainly due to weak financial bases and somewhat less expeditious responses by universities, the real effect of this reform still remains to be seen. 6. concluDinG ReMaRKS The role of the public sector is possibly important in biomedical research. Biomedical research is characterized by the high importance of basic research done at universities and public research institutions. However, there are many steps before basic research leads to commercialization. Producing and transmit - ting scientific knowledge can take a wide variety of forms depending on research areas, organizations, participants, and other factors. Accordingly, there is no single answer with respect to methods of public support for biomedical research. Conse - quently, public support for research and pro-patent policy measures in particular must be designed with sufficient attention to the characteristics of institutional and organizational features of the public sector on a case-by-case basis. We think that flexible funding schemes and higher mobility of researchers are keys to improve public-private linkage in Japan. The low mobility of researchers has possibly hindered mutual understanding regarding institutional as well as mutual organizational features and researchers’ incentives. This may make it all the more difficult for Japanese researchers to do public-private collaborative research in an expeditious way. ReFeRenceS Agrawal, A. and R. Henderson. 2002. “Putting Patents in Context: Exploring Knowledge Transfer from MIT.” Management Science 48(1):44-60. Argyres, N. S. and J. P. Liebeskind. 1998. “Privatizing the Intellectual Commons: Universities and the Commercialization of Biotechnology.” Journal of Economic Behaior & Organization 35:427-454. Council for Science and Technology Policy. 2002. Reports on the Reform for Competitie Research Grants. (in Japanese). Council for Science and Technology Policy. 2005. Reports of the Expert Panel on the Basic Policy. . Dasgupta, P. and P. David. 1994. “Toward a New Economics of Science.” Research Policy 23: 487-521. Hall, B. H. 2005. “Exploring the Patent Explosion.” Journal of Technology Transfer 30:35-48. Hayashi, F. and E. C. Prescott. 2002. “The 1990s in Japan: A Lost Decade.” Reiew of Economic Dynamics 5:206-235. Heller, M. and R. Eisenberg. 1998. “Can Patents Deter Innovation? The Anticommons in Biomedical Research.” Science 280, 698. Henderson, R., M. Trajtenberg and A. Jaffe. 1998. “Universities as a Source of Commercial Tech- nology: A Detailed Analysis of University Patenting, 1965-1988.” Reiew of Economics and Statistics 80(1):119-127. PRePublication coPy

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